Chevron halts Brazil production after new leak

An aerial view is seen of oil that seeped off the coast of Rio de Janeiro, caused by a well drilled by Chevron at Frade, on the water in Campos Basin in Rio de Janeiro state November 18, 2011.
REUTERS/Rogerio Santana

RIO DE JANEIRO Chevron (CVX.N) filed to temporarily halt production operations in Brazil on Thursday after it detected a "small new seep" of oil in the same offshore field where it suffered a high-profile leak in November.

The U.S. oil company said it was taking the step as a precautionary measure to study its "reservoir management plans" in Brazil, where it has spent over $2 billion developing the largest foreign-run oil field. If approved by Brazilian regulators, the suspension will shut down a field with the capacity to produce 80,000 barrels a day, more than 3 percent of Brazil's oil output.

Chevron's previous spill leaked 2,400 to 3,000 barrels from sea-floor cracks and resulted in an $11 billion civil lawsuit, the largest environmental damages case in Brazil's history, even though the total amount of oil was less than 0.1 percent of the BP (BP.L) spill in 2010 in the Gulf of Mexico.

Chevron said there is no evidence yet that the two spills in Brazil are related or that it caused the latest leak.

"The suspension of production is designed to let us analyze scientifically what caused this," Rafael Jaen Williamson, Chevron's director of corporate affairs in Brazil, said at a news conference in Rio de Janeiro. He added that he hoped the suspension would only last "a matter of months" and that the decision does not alter Chevron's investment plans in Brazil.

The move to suspend operations at the so-called Frade field, which is currently producing about 61,500 barrels a day, raises questions about the safety and speed with which Brazil can develop giant new offshore oil resources.

The Campos basin, where Frade is located, and the neighboring Santos basin contain an estimated 100 billion barrels of oil, enough to provide all current U.S. needs for more than 14 years.

Brazil hopes the region, the world's most promising offshore frontier, will help it produce more than 7 million barrels a day of oil by 2020, passing the United States to be the No. 3 oil producer after Russia and Saudi Arabia.

Chevron's troubles in Brazil could force it to rethink its Latin American strategies. A shortage of trained workers, engineers and equipment have driven up costs in Brazil, and Chevron faces an $18 billion environmental verdict in Ecuador.

The request to suspend output came on the same day that Brazilian oil regulator ANP said it had notified Chevron that it would be fined an undisclosed amount for failing to prevent seepage at the site. Chevron is already facing fines of up to $121 million for the November spill and has had its drilling license suspended in Brazil.

Chevron said the decision to suspend production at Frade was supported by its partners in the field: Brazilian state oil company Petrobras (PETR4.SA) and Frade Japan, which is owned by Japan's Inpex (1605.T), Japanese trading house Sojitz (2768.T) and Japanese state oil and metals group JOGMEC.

Chevron shares, which were already trading down for the second straight day before the news of the new Brazil leak, slid further. The shares fell as much as 1.1 percent to $109.47, with trading volumes reaching the highest level in three weeks.

They closed at $110.03, down 0.6 percent from Wednesday.

The ANP said the oil was seeping out of cracks in the ocean floor, not the Chevron well that was sealed following last year's leak. Williamson, the Chevron executive, said there was no evidence that the new leak was caused by drilling or production at the Frade field.

The leak was first spotted on March 4, and engineers found the source on March 13, Williamson said. Oil is leaking from an 800-meter-long crack on the sea floor, only a few millimeters wide, said Mauro Pagam, an installation engineer with Chevron.

"We were not drilling or injecting water in the area of the latest leak," Williamson said. "The information that we have now leads us to believe that this is not ours."

The Campos basin is known for natural leaks of oil - seepage that helped lead to the discovery of the petroleum region, responsible for 80 percent of Brazil's oil output.

There is no longer any oil on the surface and the spill did not result in a slick, only "small balls of oil" that have been broken up mechanically by boats, Pagam said. Only 5 liters of oil were collected during the cleanup.

The ANP said on Tuesday that Chevron could win back its drilling rights "within months" if it can convince Brazilian officials it understands exactly what caused the November leak.

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